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As some European leaders are daydreaming about sending their troops to Ukraine, which Moscow has already indicated would be rightfully viewed as an escalation, European economies are edging closer and closer to a point of no return.
In my previous video that I uploaded just yesterday, I discussed Germany's economic collapse as the latest second quarter data shows significant manufacturing declines. And despite such poor economic performance and cuts on social spending, which Chancellor Mars is now anticipating, he says he's ready to send troops to Ukraine. Well, PM Starmer, with the UK economy not doing much better, is also eager to invest in a military intervention.
So I think it is worth looking at these ambitions via a more realistic lens and also considering just how much these leaders disregard domestic issues at home that are quite structural in their nature and they disregard these issues for the sake of militarism and for the sake of benefiting the military-industrial complex.
In fact, the UK economy is balancing on a knife edge quite literally. According to a very, very detailed and insightful article that I recently came across on Morning Star, which is a great resource, UK investors are growing increasingly nervous. They know things are not going well. With inflation proving very stubborn, unemployment creeping up, and consumer spending softening, the question is becoming louder by the day. Is the UK heading into a recession and just how bad will it be? The warning signs are piling up. There are so many of them.
Similar to German GDP figures that I discussed here just the other day, the most recent GDP figures from the British Office for National Statistics showed a 0.1% contraction in May and that followed another contraction a month prior in April. So you have to look at this trend on a cumulative basis. This is not on the monthly standalone basis. Look at this on the cumulative basis. It is a snowball effect.
Even Chancellor Rachel Reeves didn't sugarcoat the numbers. She called them quote disappointing. And for a good reason, and that's probably to put it mildly, GDP, which is the core measure of economic output, is flatlining. And yes, there was an official 0.7% growth that was posted in Q1 of this year. And Q2 might narrowly avoid a contraction. But even if the UK avoids a technical recession, this time the overall trend is underwhelming. Economic growth is sluggish, confidence is fragile, and multiple sectors are under pressure.
So, let's look at what's going on under the surface and take a look at some key economic details to help you understand just how concerning this should be. UK inflation is stuck at 3.6%. That's the official rate, which is still well above the Bank of England's 2% target rate. And while that's down from the double-digit levels that we saw back in 2022, it is not falling anywhere. It is not falling fast enough. The Bank of England now expects inflation to edge up to at least 3.75% through the end of this year.
Borrowing costs remain high and if you continue financing a proxy war, this is the last thing that you want. This is a huge issue. You don't want your borrowing to remain high. The 10-year yield now sits at 4.63% 63% which is nearly 50 basis points higher than a year ago and this is happening as government borrowing balloons. In June alone, the UK borrowed 20.7 billion with a B billion pounds which is more than triple the figure from the same month last year. Government debt is now significantly above forecast too.
This narrows the chancellor's options ahead of the autumn budget. So, she has to deal with either higher taxes, not a good not a good solution, a very unpopular one, or deeper spending cuts, not a good way out either, or even borrowing more. Um, all of those options are on the table.
Consumer spending and confidence are flashing red, too. Consumer spending, which is of course the engine of the UK economy, is slowing considerably. Retail activity declined. We've got fewer flights, fewer ships at UK ports. These are subtle but very telling signs that households are feeling the pinch and they're pulling back. On top of that, with housing costs still high and wages wages are stagnating, even this sector is beginning to show cracks. Economists know when consumers start holding back as they are now, recessions often follow.
Employment is another issue. The UK jobs market is no longer as tight as it was before. Total employees actually fell by 135,000 jobs year. In just one month, from May to June, another 41,000 jobs were lost. Now the unemployment the unemployment rate has risen to 4.7%. Meanwhile the number of people claiming unemployment benefits has also climbed. It climbed to 1.7 million people. And also redundancies increased 17% in a single month. So here's another troubling figure. If that wasn't enough, over 13% of young men in the UK are now classified as not in education, not in employment or training. So, they're not being gainfully employed and they're not training. They're not improving their skills to gain that employment in the future. This is really bad, bad sign.
This is more than just numbers, of course. It is a sign that businesses are cutting back and not just on hiring but on headcount. And remember, many are also grappling with higher national insurance contributions which kicked in this past April, several months ago. And that is making it more expensive to hire new employees. So businesses are cutting back and they're saying we can't even hire people to continue operations because it is just too expensive.
So, if we're being honest, a complete economic crash is at this point likely a question of when, not if. Nevertheless, PM Starmer is more interested in waging wars on an imaginary adversary than addressing systemic structural issues that the UK is facing.
What's even worse is that manufacturing and construction in the UK, two critical sectors for the UK economy, have been in decline, not just for one month, but for six straight months. The situation is being made worse by ongoing tariff concerns, especially from the United States. While the UK does enjoy what many believe, let's put it this way, a preferential trade deal with Washington, the actual impact of American tariffs on the UK economy is still being assessed. We just don't know the numbers yet. It is too soon to tell. If these bite harder in the coming quarters, it could actually uh even uh make this momentum worse for the long term.
While markets are somewhat upbeat, they don't necessarily reflect what's happening on the ground for households and small businesses not yet. The chancellor has limited room to maneuver and the bank faces the tough job of taming inflation without crushing growth. And for now, it is a delicate balance, of course, and the economy is walking a tight rope, just as Europe and the UK are desperately trying to maneuver their way into a military escalation in Ukraine.
If you're located in the UK, we would love to hear from you. Let us know in the comments what is your take on the UK economy and what's your take on PM Starmer's stance on the Ukraine conflict. We would love to hear from you. Thanks so much for watching. If you found this squid breakdown helpful, remember to like, subscribe, and follow me on Substack and Patreon. I would love to see you there. Enjoy the rest of your day. Take care.